Advance Auto Parts announced Oct. 16 that it has entered into a definitive agreement to acquire General Parts International Inc., (GPII), a leading privately held distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the CARQUEST and WORLDPAC brands, in an all-cash transaction with an enterprise value of $2.04 billion.
The transaction has been approved by the boards of directors of both companies and is expected to close in late 2013 or early 2014.
The deal will create the largest automotive aftermarket parts provider in North America, with annual sales of more than $9.2 billion and more than 70,000 employees. The strong combined financial profile allows for an all-cash transaction and supports Advance’s commitment to maintain its investment grade rating. Advance said that the acquisition of GPII will accelerate its growth strategy and enhance shareholder value through the following strategic benefits:
• Creates Market Leader – (1) #1 automotive aftermarket parts provider in North America with a balanced platform for growth between Do-It-yourself (DIY) and Commercial, (2) #1 distributor of import automotive parts and (3) the largest automotive aftermarket business-to-business e-commerce platform in North America.
• Delivers Scale – Provides Advance with complete coast-to-coast coverage across North America, creating a company with scale, reach and expanded growth opportunities benefiting shareholders, customers and team members. This presence in new markets allows Advance the ability to expand its geographic footprint in an efficient manner.
• Accelerates Complementary Market Opportunities – Expands Advance’s product and category offerings in both core and new product lines (i.e. paint and heavy duty), creates new sales channel with independent customers and broadens ability to grow with attractive customer segments such as larger bay garages, import specialists, national accounts and fleet and government programs.
• Strengthens Leading Brands and Capabilities – Enhances Advance’s ability to serve customers through the transfer of CARQUEST’s commercial capabilities and Team Member parts knowledge into Advance stores while expanding DIY into select company-operated CARQUEST stores. The combination expands key capabilities in customer service through enhanced daily replenishment and customer loyalty programs to a larger truck fleet and a significantly expanded commercial sales team.
Darren Jackson, Chief Executive Officer of Advance Auto Parts said O. Temple Sloan III, President of General Parts International, will continue as President of GPII, reporting to Jackson and is expected to join the Advance Auto Parts Board of Directors. The combined company will be headquartered in Roanoke, Va., and will continue to maintain a presence in Raleigh, N.C.
Jackson said, “This transformational transaction provides a compelling strategic opportunity for Advance to expand our geographic presence and commercial capabilities to better serve customers. The addition of 1,246 company operated stores and 1,418 independently owned CARQUEST locations provides us with an immediate platform and scale across North America, full market coverage and the opportunity to position ourselves as the market leader in the commercial business. We believe the combination of the two companies is a great fit and the synergy of GPII’s assets with our capabilities will allow us to capitalize on market opportunities that will create value for our shareholders and provide even better service to our customers. We welcome and look forward to working with the talented leaders and team members from GPII.”
Sloan said, “We are excited to bring together two highly complementary automotive aftermarket companies. The combination with Advance Auto Parts is the next logical step in our company’s evolution. Advance’s retail presence, strong capability infrastructure and acquisition integration experience combined with GPII’s leadership in the commercial, independent and import segments creates a powerful platform to drive profitable growth. With a more robust offering and a shared focus on best-in-class customer service, our combined business will continue to deliver value for customers and shareholders.”
Financial benefits
Advance anticipates that the transaction will result in approximately $160 million of annual run-rate synergies to be fully realized within three years after closing. The transaction is also expected to generate considerable free cash flow and deliver significant estimated FY14 Cash EPS accretion of more than 20% excluding one-time costs to achieve synergies and a percentage increase in the low teens including one-time costs to achieve synergies.
Advance Auto Parts intends to finance the acquisition through a combination of senior notes, bank debt and existing cash on hand. Following the transaction, Advance expects to continue to have a solid balance sheet supported by the strong cash flow of the combined business. In connection with the transaction, Advance has received a financing commitment from JPMorgan Chase Bank, N.A. with the senior notes offering and bank debt syndication expected to occur prior to closing.
Mike Norona, Chief Financial Officer of Advance Auto Parts said, “This strategic transaction presents an exciting opportunity for value creation and Advance is dedicated to delivering on the compelling financial potential this combination creates while remaining committed to maintaining our investment grade credit rating.”
The transaction is subject to regulatory approvals and customary closing conditions and is expected to close by late 2013 or early 2014.
Preliminary third quarter results
Advance will release its third quarter earnings on October 31, 2013, but in connection with the transaction announcement is releasing the following preliminary information, which remains subject to change as the quarterly information is finalized.
Total sales for the third quarter increased 4.3% to $1.52 billion, as compared with total sales during the third quarter of fiscal 2012 of $1.46 billion. The sales increase was driven by the acquisition of B.W.P. Distributors, Inc. (BWP) and the net addition of 170 new stores over the past 12 months, partially offset by a comparable store sales decrease of 2.0% versus a comparable store sales decrease of 1.8% during the third quarter of fiscal 2012. Year-to-date, total sales increased 4.3% to $5.09 billion, compared with total sales of $4.88 billion over the same period last year.
The company’s operating income during the third quarter is expected to be $170.7 million, which was a 13.5% increase versus the third quarter last year. Third quarter earnings per diluted share (EPS) are expected to be $1.42, which was a 17.4% increase versus the third quarter last year. Included in the EPS results are $0.04 of transaction related expenses related to the pending acquisition of GPII and $0.02 of BWP integration expense. The company also reaffirms its previously released earnings per share 2013 annual outlook of $5.30 - $5.45.
About Advance Auto Parts
Headquartered in Roanoke, Va., Advance Auto Parts is a leading automotive aftermarket retailer of parts, accessories, batteries, and maintenance items in the United States, serves both the do-it-yourself and professional installer markets. As of October 5, 2013, Advance operated 4,018 stores in 39 states, Puerto Rico, and the Virgin Islands. For more information visit www.AdvanceAutoParts.com.
About General Parts International Inc.
Headquartered in Raleigh, N.C., and founded in 1962 by Chairman O. Temple Sloan Jr., General Parts International is a leading distributor and retailer of replacement parts, supplies, tools and equipment for automobiles, light and heavy trucks, off-road equipment, buses, recreational equipment, and agricultural equipment. It operates the CARQUEST auto parts distribution network, with 38 distribution centers, 1,246 company operated stores across the U.S. and Canada and 1,418 independently owned CARQUEST locations primarily in the U.S. and Canada. It also operates WORLDPAC, a leading importer and distributor of original equipment and quality aftermarket replacement automotive parts to import specialists in North America and Puerto Rico operating four main distribution centers and 102 facilities across the U.S. and Canada. For more information visit www.CARQUEST.com and www.WORLDPAC.com.
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